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Ore Deficit to Continue Pushing up Zinc Prices in 2017, SMM Says

iconNov 17, 2016 11:15
Zinc prices advanced in 2016. What’s behind the rapid gain in zinc prices? What’s price zinc trend in 2017?

SHANGHAI, Nov. 17 (SMM) - Zinc prices advanced in 2016. What’s behind the rapid gain in zinc prices? What’s price zinc trend in 2017?

Ore supply shortages have driven up zinc prices this year. As zinc concentrate deficit is expected to remain at about 170,000 tonnes next year, zinc prices will stay strong early next year but fall during Q2-Q3 2017, SMM predicts at the 2016 SMM Summit.

Zinc Supply

Global Zinc Concentrate Deficit to Fall in 2017

Closures at zinc mines in 2015 have shown result to zinc market in 2016, SMM said.

Century and lisheen mine were shut down in 2015, affecting 760,000 tonnes of output. Glencore cut capacity at its mines in 2015. After its announcement, LME zinc surged 10% on the same day.

Hindustan Zinc slashed output by 830,000 tonnes in 2016. But new and expanded zinc concentrate capacity during 2015-2016 will be 22.20 million tonnes, SMM finds in a survey.

As such, global zinc concentrate shortfalls will reach 170,000 tonnes in 2017, SMM predicts at the Summit. 


China Will Have 400,000-tpy Zinc Smelting Capacity Coming on Stream in 2017


About 400,000-tpy zinc smelting capacity in China will be brought into production in 2017, SMM predicts at the Summit.

365,000-tpy zinc smelting capacity was constructed in 2016. Taking into consideration the 60,000-tpy eliminated, newly increased capacity will be 325,000-tpy. These capacities will fully enter production next year. 


China’s refined zinc supply peaked at 5.53 million tonnes in 2015 after years of expansion, SMM finds in a survey. The average operating rate at Chinese zinc smelters will average 75% in 2016, and refined zinc output will be about 5.46 million tonnes, down 70,000 tonnes from last year. Meanwhile, net imports will decrease some 60,000 tonnes this year because of unfavorable SHFE/LME zinc price ratio. On the consumption side, zinc consumption increased nearly 200,000 tonnes this year from last year, leaving refined zinc deficit at 350,000 tonnes this year.


China Zinc Concentrate TCs to Rise in Q2-Q3 2017

Over the past five years, China’s zinc concentrate TCs bottomed during late 2011 and mid 2012, falling from a high of 6,400 yuan per tonne (zinc content) in early 2011 to 4,300 yuan per tonne (zinc content), SMM said. In this scenario, a large number of zinc smelters slashed output, with operating rates down from 85% to 60%.

China’s zinc concentrate TCs fell from 5,400 yuan per tonne (zinc content) early this year to 4,300 yuan per tonne (zinc content). However, zinc smelters showed no intention to cut output. Their operating rates rose in the latter half of the year.

Zinc prices in China were 14,500-15,500 yuan per tonne in late 2011. Smelters suffered from severe losses given TCs at that time. In 2016, zinc prices remained high, although TCs have fallen to a low. Most smelters still have profit.

With exacerbating ore tightness and climbing zinc prices, SMM expects TCs of domestic zinc concentrate will fall further during Q4 2016 and Q1 2017, but will rise in Q2 2017.


Zinc Demand Side

Zinc consumption was better than expected in 2016, SMM said. Consumption by zinc oxide and die-cast zinc alloy was largely steady, while that by brass and primary battery shrank. Galvanizing industry is major growth point, which contributed to almost all growth in zinc consumption. The average operating rate at galvanizers rose in 2016 from 2015, according to an SMM survey.


Zinc Consumption by Galvanizing Industry in 2016

Housing construction market: rising home prices boosted floor space of buildings newly constructed in 2016.

Industry construction: construction of new plants slowed.

Public building construction: zinc consumption by this sector remained stable due to urbanization and urban agglomeration construction.

Infrastructure construction:  zinc consumption by this field, including highway, railway, airport and water conservancy construction grew slightly.

Architectural ornament: floor space of buildings newly completed and sold increased 2016, but will shrink in the following 5 years. This will give limited effect on total zinc consumption.

Steel structure: the development of urbanization and transport infrastructure brought opportunities for the industry. But utilization in the residential buildings is still limited.

Automobile market: China’s automobile output and sales hit a record high in 2016 thanks to policy support, boosting zinc consumption by this industry.


Outlook for Zinc Supply & Demand Balance in 2017

Zinc consumed by China will slow in 2017, while zinc consumption in Europe, US, India and Southeast Asia countries will be better than this year, SMM said.


China Zinc Supply & Demand Balance

China’s refined zinc output will be 5.51 million tonnes in 2017, with 640,000 tonnes of imports and 10,000 tonnes of exports. Zinc apparent consumption will be 6.14million tonne, and real consumption is expected to be 6.43 million tonnes.


Zinc Price Outlook in 2017

SMM predicts LME 3-month zinc will average $2,200 per tonne in 2017. Spot zinc prices in China will average 17,600 yuan per tonne.

Zinc prices will maintain upward momentum during late 2016 and early 2017, but will fall during Q2-Q3 2017 as supply and demand are expected to be balanced in 2018.

For news cooperation, please contact us by email: sallyzhang@smm.cn or service.en@smm.cn. 


zinc prices
zinc concentrate
zinc inventories
LME zinc prices
SHFE zinc prices
zinc ore
zinc supply

For queries, please contact Michael Jiang at michaeljiang@smm.cn

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